Question

During 2025, Saul Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts: 2023 $60,000 understated 2024 $75,000 understated Prior to any adjustments for these errors and ignoring income taxes, 2024 Net Income would be:

Answer 1

$15,000 overstated

Step-by-step explanation:

Item Amount

Inventories over stated in 2024 $75,000

Less: Under stated in 2023 ($60,000)

Inventories over stated in 2025 $15,000

Overstated inventory means, cost of goods will be understated in income statement. so net income will show as overstated. it means retained earnings also overstated by $15,000